Hope for Britain after Brexit

Those who predict economic Armageddon ignore the reality. The status quo wasn’t working – now there’s an opportunity for change writes Larry Elliott in The Guardian

‘The mass exodus of banks and other financial institutions from the City of London, predicted since June 2016, has not materialised.’ View over the Thames to the City. Photograph: Niklas Halle’n/AFP/Getty Images

So this is it. Forty-eight years after Britain joined what was then the European Economic Community, the fasten seatbelt signs are switched on and the cabin lights have been dimmed. It is time for departure.

Many in the UK, especially on the left, are in despair that this moment has arrived. For them, this can never be the journey to somewhere better: instead it is the equivalent of the last helicopter leaving the roof of the US embassy in Saigon in 1975.

The lefties who voted for Brexit see it differently. For them (us, actually, because I am one of them), the vote to leave was historically progressive. It marked the rejection of a status quo that was only delivering for the better off by those who demanded their voice was heard. Far from being a reactionary spasm, Brexit was democracy in action. 

Now the UK has a choice. It can continue to mourn or it can take advantage of the opportunities that Brexit has provided. For a number of reasons, it makes sense to adopt the latter course.

For a start, it is clear that the UK has deep, structural economic problems despite – and in some cases because of – almost half a century of EU membership. Since 1973, the manufacturing base has shrivelled, the trade balance has been in permanent deficit, and the north-south divide has widened. Free movement of labour has helped entrench Britain’s reputation as a low-investment, low-productivity economy. Brexit means that those farmers who want their fruit harvested will now have to do things that the left ought to want: pay higher wages or invest in new machinery.

The part of the economy that has done best out of EU membership has been the bit that needed least help: the City of London. Each country in the EU has tended to specialise: the Germans do the high-quality manufactured goods; France does the food and drink; the UK does the money. Yet the mass exodus of banks and other financial institutions that has been predicted since June 2016 has not materialised, because London is a global as well as a European financial centre. The City will continue to thrive.

If there are problems with the UK economy, it is equally obvious there are big problems with the EU as well: slow growth, high levels of unemployment, a rapidly ageing population. The single currency – which Britain fortunately never joined – has failed to deliver the promised benefits. Instead of convergence between member states there has been divergence; instead of closing the gap in living standards with the US, the eurozone nations have fallen further behind.

In their heads, those predicting Armageddon for the UK imagine the EU to still be Germany’s miracle economy – the Wirtschaftswunder – of the 1960s. The reality is somewhat different. It is Italy, where living standards are no higher than they were when the single currency was introduced two decades ago. It is Greece, forced to accept ideologically motivated austerity in return for financial support. The four freedoms of the single market – no barriers to the movement of goods, services, people and capital – are actually the four pillars of neoliberalism.

The Covid-19 crisis has demonstrated the importance of nation states and the limitations of the EU. Britain’s economic response to the pandemic was speedy and coordinated: the Bank of England cut interest rates and boosted the money supply while the Treasury pumped billions into the NHS and the furlough scheme. It has taken months and months of wrangling for the eurozone to come up with the same sort of joined-up approach.

Earlier in the year, there was criticism of the government when it decided to opt out of the EU vaccine procurement programme, but this now looks to have been a smart move. Brussels has been slow to place orders for drugs that are effective, in part because it has bowed to internal political pressure to spread the budget around member states – and its regulator has been slower to give approval for treatments. Big does not always mean better.

Leaving the EU means UK governments no longer have anywhere to hide. They have economic levers they can pull – procurement, tax, ownership, regulation, investment in infrastructure, subsidies for new industries, trade policy – and they will come under pressure to use them.

Many on the remainer left accept the EU has its faults, but they fear that Brexit will be the start of something worse: slash and burn deregulation that will make Britain a nastier place to live.

This, though, assumes that Britain will have rightwing governments in perpetuity. It used to be the left who welcomed change and the right that wanted things to remain the same. The inability to envisage what a progressive government could do with Brexit represents a political role reversal and a colossal loss of nerve.

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Britain out of the EU: a treasure island for rentiers

There’s no sign that ministers will use the twin shocks of the pandemic and Brexit to fix a broken system that is failing too many people opine the editors of The Guardian

‘Culturally, Brexit plays the same sort of role as the right to buy, insulating poorer leave voters from the idea that they will suffer from the resulting policies.’ Photograph: Christopher Furlong/Getty Images
 

When the UK entered the coronavirus age in March, state resources and collective commitment were mobilised on a scale not seen since the second world war. Decades ago, Britain had revealed itself, thanks in part to being able to marshal the industrial might of the empire, to be a formidable world power. Its economy was energised with breakthroughs in radar, atomic power and medicine.

Although the story of the pandemic has not yet ended, there appears to be no such transformation in sight under Boris Johnson. Rather depressingly, familiar trends of greed, incompetence and cronyism are reasserting themselves. This is bad news for an economy where there has been a collapse of socially useful innovation. Britain’s lack of hi-tech manufacturing capabilities, notably in medical diagnostic testing, was cruelly exposed by the pandemic.

This country has become more of a procurer than a producer of technology. But it is a remarkably inefficient one – despite an extraordinarily high percentage of lawyers and accountants in the working population. Connections seem to matter more than inventions. How else to explain why, in the desperate scramble to procure personal protective equipment, ventilators and coronavirus tests, billions of pounds of contracts have gone to companies either run by friends or supporters – even neighbours – of Conservative politicians, or with no prior expertise.

History is not short of examples where political insiders were successful in extracting virtually all the surplus that the economy created. Such influential interests moulded politics to enlarge their share of the pie. Greed was limited only by the need to let the producers survive. The shock of war, revolution, famine or plague provides an opportunity to fix a broken society. But if, post-pandemic, UK politicians care less about reform than the retention of power, they will fail to restrain the grasping enrichment that undermines democracy itself.

Windfall profits

Perhaps the most penetrating X-ray of this phenomenon today is by Brett Christophers in his book Rentier Capitalism. The academic makes the case that Britain has become a treasure island for those seeking excess profits from state-sanctioned control of natural resources, property, financial assets and intellectual property. Rent, paid by renters to rentiers, is tied to the ownership or control of such assets, made scarce under conditions of limited or no competition.

Mr Christophers says that the first sign of this new order was when Britain struck black gold in the North Sea. He writes that MPs on the public accounts committee noted with incredulity in 1972 that “the first huge areas of the sea were leased to the companies as generously as though Britain were a gullible Sheikhdom”. After that, public assets were sold off cheaply. The private sector ended up controlling lightly regulated monopolies in gas, water and electric supply, and public transport and telecoms. Customers lost out, overpaying for poor service. In a rentier’s paradise, windfall profits abound. Brazenly occupying the lowest moral ground was essential, as the housebuilder Persimmon proved by earning supersized state-backed help-to-buy profits long enough to hand out a £75m bonus to its boss.

The banks, which took this country to the brink of collapse a decade ago, are at the heart of a rentier state. France, Germany, Japan, the US all have banking sectors smaller than the UK. While banks earning rents have flourished, the households paying them – either directly as financial consumers, or indirectly as taxpayers of a debtor state or customers of debtor firms – have floundered.

The anger that such spivvery engenders is diffused politically by making voters complicit in the theft. The sell-off of council homes, says Mr Christophers, was a privatisation that gave many of those perhaps most inclined to kick against Thatcherism a personal stake in the project. Culturally, Brexit plays the same sort of role as the right to buy, insulating poorer leave voters from the idea that they will suffer from the resulting policies.

The prime minister understands that Covid can change Britain, but lacks modernising policies. He extols the virtues of free competition – both for itself and because such freedom, he reasons, will somehow liberate the spirit fluttering within a pre-Brexit Britain caged by coronavirus. He is no doubt betting that the disruption of leaving the EU will be lost in the roar of an economy taking off as an inoculated population returns to offices and shops.

Weakened regulations

The gap between rich and poor in the UK is at least as high today, academics calculate, as it was just before the start of the second world war. This is largely because the British state that once mediated the struggle between labour and capital has been taken over by rentiers. Weakening regulations, reducing the importance of fiscal policy and shredding social protections has corroded liberal democracy in which an increasingly influential wealthy few have been enjoying a free run. Ultimately, rentiers want to increase what the economist Michał Kalecki called the “degree of monopoly” in an economy. This allows them to limit the ability of workers, consumers and regulators to influence the markup of selling prices over costs and to defend the share of wages in output.

The EU says its labour, environment and customer protections are a floor, not a ceiling, and that they can’t be traded away for frictionless market access. If we had stayed in the club, our ability to concentrate profits for monopolists would have been stymied in future trade deals negotiated by Brussels and open to MEPs’ scrutiny. Outside the EU, Mr Johnson can barter away such regulations – without parliamentary oversight – and scrap safeguards in new technology for higher monopoly profits. Karl Marx wrote in The Eighteenth Brumaire of Louis Bonaparte in 1852 that “the Tories in England long fancied that they were in raptures about royalty, the church and the beauties of the ancient constitution, until a time of trial tore from them the confession that they were only in raptures about rent”. His assessment of early 19th-century Tories applies with unerring accuracy to today’s Conservatives.

Mr Christophers’ insight is that the Tories under Mr Johnson are a party of – and for – rentiers, much more than the interests of productive capital. This explains why, after 2016, the Tory party embraced Brexit and shrugged off productive capital’s concerns about leaving the EU. It will be to the great detriment of this country if the pandemic permitted Mr Johnson to combine present-day fears with a yearning for hopeful change to persuade the average person to vote against their interests in the future. But history often repeats itself first as tragedy, then as farce.

Throughout history Britain’s ruling class has created crisis after crisis – just like now

Boris Johnson’s run of bad decisions on Brexit and Covid have their roots in a saga of elite entitlement and superficiality writes John Harris in The Guardian

‘Then came the Brexit trade deal, and a familiar idea returned, that under the shambling exterior, the prime minister is some kind of swashbuckling genius.’ Photograph: Pippa Fowles/No10 Downing Street


When the novelist John le Carré died earlier this month, among the passages quoted by journalists was a short excerpt from The Secret Pilgrim, published in 1990. In the book, the words are spoken by Le Carré’s fondly loved character George Smiley. “The privately educated Englishman – and Englishwoman, if you will allow me – is the greatest dissembler on Earth,” he says. “Was, is now and ever shall be for as long as our disgraceful school system remains intact. Nobody will charm you so glibly, disguise his feelings from you better, cover his tracks more skilfully or find it harder to confess to you that he’s been a damned fool.”

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The words are a cutting summary of the far-off era of upper class treachery and cold war subterfuge, but also fit the less romantic time of Brexit, the pandemic and a Conservative party whose leadership by two public schoolboys has so pushed us into disaster. Therein lies a huge part of the national tragedy that, amid stranded lorries, a shamefully high death toll and some of the greatest peacetime blunders this country has ever made, has recently seemed to be reaching some kind of awful climax. Of late, some of the best writing about the mess we are in has focused on Boris Johnson’s character flaws, which are undoubtedly a big part of the tale. But what has been rather less examined is the fact that his shortcomings blur into a much longer story about our longstanding ruling class, and its habit of creating crisis after crisis.

The year 2021 will mark the 80th anniversary of George Orwell’s inspirational essay, The Lion and the Unicorn, his warmly patriotic text about the English national character, and his belief that this country’s efforts in the early stages of the second world war were being compromised by the fact that he was still resident in “the most class-ridden country under the sun”. Here, too, there are plenty of characterisations of the English elite that seem as pertinent now as they were then. “Probably the battle of Waterloo was won on the playing fields of Eton, but the opening battles of all subsequent wars have been lost there,” wrote Orwell, and as an Etonian himself he surely knew what he was talking about.

Of the ruling-class politicians who had overseen Britain’s domestic travails during the 1920s and 30s while pursuing the disastrous foreign policies that culminated in appeasement, he said this: “What is to be expected of them is not treachery, or physical cowardice, but stupidity, unconscious sabotage, an infallible instinct for doing the wrong thing. They are not wicked, or not altogether wicked; they are merely unteachable.” Back when Conservatives at least partly understood such criticism and successively embraced first postwar consensus politics, then the populist meritocracy most spectacularly embodied by Margaret Thatcher, they were harder to malign as chancers and stuffed shirts. But in the buildup to Christmas, as I watched Johnson deny the nightmare of a no-deal Brexit, row back on his stupid promise of a normal Christmas and then yet again offer the prospect of a return to normality (this time, he seemed to suggest, by Easter), Orwell’s words once again made perfect sense.

Since the election as party leader of David Cameron back in 2005, even if the Conservatives have stuck with a post-Thatcher view of the world, many of the inner circles of Tory politics have reverted to a way of doing things more rooted on the grouse moors of old than in the modern world. Johnson’s arrival at the top revived a familiar mixture of entitlement, superficiality and lives that most people would think impossibly opulent. We all know what those things have led to – a seemingly endless run of terrible decisions, from the calling of the 2016 referendum to the chain of stupidities that has defined Britain’s experience of Covid-19.

Just to be clear: the downsides of a certain kind of privileged leadership have flared up on all sides of politics, from the messianic arrogance that led Tony Blair into the Iraq disaster, to Nick Clegg’s virtual destruction of the Liberal Democrats. But in the main, this is a Tory story. If your Christmas presents included the horrifically readable memoir, Diary of an MP’s Wife by Sasha Swire (whose husband, Hugo, was a minister under Cameron and part of his social circle), you will have a sense of what all this looks like up close. Johnson’s biographer, Sonia Purnell, described Swire’s book as a portrait of people who are “unserious, entitled, snobbish, incestuous and curiously childish” – obsessed with the subtle distinctions of taste and status that separate the middle from the upper class, and drawn to politics and power not out of any sense of mission or duty, but a dull belief that such things are what people like them do. Under Johnson, the same culture of entitlement and mutual back-scratching has hardened into the so-called “chumocracy”. Oligarchy is rarely an efficient or sensible way to govern, but that doesn’t seem to have got in the way.

Just before Christmas, dismay about the Johnson government and its apparent distance from reality seemed to be reaching a peak. But then came the Brexit trade deal, and a familiar idea returned – not least in the rightwing press – that under the shambling exterior, the prime minister is some kind of swashbuckling genius. This is an archetype that depends on the glib charm cited by Le Carré, and draws on a deep well of deference. The reality is surely that a reckless project driven by the alumni of private schools (Johnson, Dominic Cummings, Nigel Farage, Jacob Rees-Mogg et al) has resulted in probably the only trade deal in history that puts up barriers to commerce rather than removing them, and will be rushed through parliament with a sickening disdain for any scrutiny. Combined with the economic effects of the pandemic, the result will be damage and uncertainty that is only just starting: all the talk about Brexit now being finished is further proof of the ditch we have been led into.

The disasters, then, will continue to mount up, but will they result in any change? If history teaches us anything, it is that this country’s mixture of cap-doffing and unassailable privilege tends to keep even the most rotten hierarchies in place, and the saga grinds on. This is the essence of the very British mess that we seem unable to escape.

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How UK-EU trade deal will change relations between Britain and Brussels

Sam Fleming and Jim Brunsden in The FT

The future relationship deal struck between the UK and the EU (24 Dec 2020) will bring far-reaching changes, as both sides are forced to adapt to the end of Britain’s 30-year membership of the European single market

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The trade agreement between London and Brussels will offer UK and EU companies preferential access to each other’s markets, compared with basic World Trade Organization rules — ensuring imported goods will be free of tariffs and quotas. 

But economic relations between the UK and the EU from January 1, when the deal is due to take effect, will be on more restricted terms than they are now.  

“Everyone needs to get prepared for a situation next year that will be very different to today,” said an EU official. 

A trade agreement along the lines of the one negotiated between the two sides will leave Britain facing a 4 per cent loss of potential gross domestic product over 15 years compared with EU membership, according to the UK’s Office for Budget Responsibility. Failure to secure an agreement would have led to lost potential GDP of almost 6 per cent, the fiscal watchdog estimated. 

Below are some of the benefits conferred by the UK-EU future relationship deal, which also includes security co-operation — and the important areas in which Britain’s links with the bloc will fall short of existing arrangements. 

1. Trade in goods  

The EU and UK’s starting point for the future relationship talks was that they should lead to a deal with no tariffs on trade in goods between the two sides. They also wanted no quantitative restrictions on the volume of goods that could be sold free of tariffs.  

That was negotiated, meaning the deal will go beyond what the EU has done with any other advanced economy outside the European single market.  

But the agreement is still a very different state of affairs to membership of the EU single market and customs union. 

Once implemented, from January 1, a hard customs and regulatory border will exist between the EU and UK, and goods will face checks and controls that can be smoothed at the margins only by co-operation. 

The deal will include facilitations such as co-operation on trusted trader schemes, but none of these erase border checks. 

“The agreement provides for continued and sustainable air, road, rail and maritime connectivity, though market access falls below what the single market offers,” said the European Commission.

2. Fair business competition 

The EU’s offer on tariff-free trade was contingent on the UK agreeing to uphold a “level playing field” on fair business competition in areas such as environmental standards. 

Brussels was also keen to ensure the UK does not have unfettered scope to disburse state aid to prized industries, giving them a competitive advantage.  

The agreement includes common binding principles on state aid, enforceable in both sides’ courts, which would be able to recover illegal subsidies. 

It also includes a painstakingly negotiated “rebalancing mechanism” to deal with a situation where the sides’ regulations in areas such as labour rights diverge over time. 

The mechanism, which would be subject to independent arbitration, would allow the disadvantaged side to impose tariffs to restore fair competition. 

But, crucially for the UK, it will not be required to follow EU rules directly or be subject to the jurisdiction of the European Court of Justice. 

Being outside the European single market has other regulatory consequences for Britain. For example, UK businesses will no longer be able to assume that product authorisations from British watchdogs will allow their goods to be placed on the European market.  

3. Fish 

The deal creates a five-and-a-half-year transition period during which EU fishermen will have guaranteed access to UK waters. 

EU quotas in British waters will decline in the transition by 25 per cent compared with current levels, and this will have the knock-on effect of boosting how much UK fishermen can secure. EU boats currently catch about €650m of fish in British waters each year. 

Once the transition period is over, EU boats’ access to UK waters will in principle depend on annual negotiations between both sides. Those talks will also determine the overall quantities of different species that can be caught. 

Should EU boats’ access to British waters ever be revoked by the UK, the bloc will have the right to take compensatory measures. These include retaliatory closing of EU waters to UK boats, and the imposition of tariffs on British fish. 

The deal also links the UK’s access to the EU energy market to access to British fishing waters. 

The UK warded off EU demands for a cross-retaliation power to hit other parts of the British economy should a dispute over fish escalate. 

Still, the deal does provide a last-resort “safeguard” option that would allow either side to take emergency measures to protect coastal communities, subject to dispute-settlement arrangements in the agreement. 

The deal enshrines the principle that Britain is now outside the EU’s common fisheries policy: an independent coastal state with sovereignty over its waters. 

4. Financial services 

The City of London will exit the EU’s single market for financial services at the end of the Brexit transition period on December 31. 

Both sides have said that the new market access arrangements for UK and EU financial services companies should be based on unilateral decisions by Britain and the bloc, rather than be provided for in the trade agreement. 

These so-called equivalence decisions involve each side evaluating whether the other’s financial services regulations are as tough as its own. 

Banks and traders have acknowledged that the proposed system is more piecemeal than existing arrangements, and less stable. The EU did not announce any fresh equivalence decisions on UK access to the bloc’s markets alongside the trade agreement on Thursday, resulting in uncertainty in key areas including share trading and derivatives. 

The two sides plan to put in place a regulatory dialogue on financial services based on a separate memorandum of understanding. 

5. Migration 

Current British and EU expatriates have their rights safeguarded by the UK’s 2019 withdrawal agreement with the bloc, but big changes to migration arrangements take effect from January 1. 

Britons will no longer have the benefit of European freedom of movement: the right to go to any EU member state and seek to work and live there on the same basis as the country’s own citizens.  

Instead, Britons will rely on a visa-waiver programme to travel to the EU for short stays, and on member states’ national rules for the right to work.  

Ending free movement for EU nationals in the UK was identified by the British government as one of the benefits of Brexit, allowing the country to devise a new immigration system.  

6. Security 

The EU and UK have been at pains to emphasise the importance of continuing co-operation in the fight against terrorism and organised crime, although talks in this area were complicated by Britain’s determination to escape the ECJ’s jurisdiction. 

But ahead of the deal being finalised, EU chief negotiator Michel Barnier confirmed the sides had found ways to maintain “close co-operation” on crucial matters including the work of the bloc’s crime-fighting agencies Europol and Eurojust, and the sharing of criminals’ DNA data. 

Brussels said the deal “builds new operational capabilities, taking account of the fact that the UK, as a non-EU member . . . will not have the same facilities as before”.  

The deal establishes that security co-operation can be suspended if the UK breaks away from the European Convention on Human Rights.